The Power Industry’s Perfect Storm

The energy industry’s power complex — the generation, transmission and distribution of electricity — is facing a perfect storm.

by Melissa McHenry

After years of flat growth, power companies are seeing a surge in demand from a confluence of factors, including: increased electrification of the economy; growth in domestic manufacturing, particularly in the chips sector; the development of large data centers to power artificial intelligence (AI); and continued expansion of cryptocurrency mining.

Just one of those demand drivers — artificial intelligence — is projected to have an unprecedented impact.

By almost any measure, AI is on a hockey stick trajectory. By 2026, annual revenue for companies like Google or Microsoft from AI products is projected to run as high as $100 billion, with total AI investment at $1 trillion annually by 2027.

All of these AI products will come out of data centers, or “training clusters,” that build large-scale generative learning models and have huge energy requirements.

The potential power demand from AI is enormous, which is one reason some tech companies are partnering with energy providers to design and build their own behind-the-meter solutions – giving them faster access to reliable, flexible power supplies. Despite these custom solutions, the draw on established power companies will be significant. The International Energy Agency now sees global electricity demand rising around 4% annually through 2027, with consumption rising an "unprecedented" 3,500 terawatt-hours -- the equivalent of adding a Japan to the world's electricity consumption each year.

"We are in the early stages of the next supercycle: global investment into the electric power system," according to GE Vernova CEO Scott Strazik.

Although some questions have been raised about the ultimate power demand from AI given the emergence of DeepSeek, a more power-efficient competitor from China, the need for investment in power infrastructure to support AI growth is a given.

Constellation spokesman Paul Adams said that the company is excited to see advances in power efficiency that could “lower the unsustainable growth in energy demand to a more achievable level.”

“We must rationalize the demand, or we will continue to struggle to meet the nation’s energy demands, maintain grid reliability and reduce pollution,” he said.

Regardless of the size of AI’s impact, meeting this new demand won’t be easy.

Already, there’s a need to retrofit existing plants and the grid, particularly to harden them against the new reality of extreme weather.

Then, as more solar and wind sources are brought online, they will require investments in advanced battery storage capacity.

And, to top it off, existing supply chains, particularly those for transformers and raw materials, were already stressed even before AI accelerated the need for investment. “The demand for transformers and grid infrastructure is rising at an unprecedented scale and pace,” said Andreas Schierenbeck, CEO of Hitachi Energy while announcing an investment of more than $250 million USD by 2027 to expand global production of critical components for transformers. Whether it’s expansion of existing facilities or the siting of new ones, effectively managing the stakeholder and regulatory processes is critical.

At the end of 2023, for example, more than 11,000 energy projects were in “interconnection queues” waiting for approval from regional grid operators to begin construction. And, the amount of time that a project spends in the queue has jumped by 550 percent between 2015 and 2023, with an average time in line of three to five years. Without local and regulatory approval, projects simply can’t move forward.

For power companies, the future will require robust, transparent and data-driven communications and even more proactive stakeholder engagement.

The future of the American economy rests on energy. From feedstock to finished product, every link in the energy value chain is critical — maybe none more than power providers as the last link in the chain.

Although the challenges are formidable, with the right combination of investment, planning, regulatory reform, innovation — supported by robust, strategic communication — there’s no doubt they can be met.

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